Tag Archives: Paul Krugman

The amorality of economics

In an easily-digestible piece for The New York Review of Books, Paul Krugman explains why economic austerity became so mainstream so fast:

Everyone loves a morality play. “For the wages of sin is death” is a much more satisfying message than “Shit happens.” We all want events to have meaning.

When applied to macroeconomics, this urge to find moral meaning creates in all of us a predisposition toward believing stories that attribute the pain of a slump to the excesses of the boom that precedes it—and, perhaps, also makes it natural to see the pain as necessary, part of an inevitable cleansing process. When Andrew Mellon told Herbert Hoover to let the Depression run its course, so as to “purge the rottenness” from the system, he was offering advice that, however bad it was as economics, resonated psychologically with many people (and still does).

By contrast, Keynesian economics rests fundamentally on the proposition that macroeconomics isn’t a morality play—that depressions are essentially a technical malfunction. As the Great Depression deepened, Keynes famously declared that “we have magneto trouble”—i.e., the economy’s troubles were like those of a car with a small but critical problem in its electrical system, and the job of the economist is to figure out how to repair that technical problem.

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The victory of Paul Krugman

Paul Krugman - Caricature
Paul Krugman. (Courtesy of DonkeyHotey.)

If ever there were an indication of the influence exerted by Paul Krugman and his intellectual kin, take a look at this:

One day after Republicans rolled out a detailed proposal aimed at eliminating the federal deficit through steep cuts and repealing many of the president’s accomplishments, Mr. Obama told them pointedly in a rare visit that their highest fiscal priority was not his.

Our biggest problems in the next 10 years are not deficits,” the president said, according to accounts from the meeting, bluntly rejecting an idea that has become Republican fiscal dogma…

Senator Patty Murray, the Washington Democrat and Senate Budget Committee chairwoman who outlined her budget on Wednesday, summed up her party’s objections to Republican austerity measures, which Democrats have said rob the country of needed investment.

Deficit reduction at the expense of economic growth is doomed to failure,” she said.

Emphases mine. But mostly, Krugman’s.

Another gem from that piece:

“The president seemed to say, ‘If we’re going to do the areas we agree on, you have to also do some of mine,’ ” said Representative James Lankford of Oklahoma, bristling at Mr. Obama’s suggestion. “If we can find the areas we agree on, why can’t we just do those?”

Indeed, Sir Lankford. Why can’t we just enact all the policies that the party who just lost its second straight presidential election wants to implement? It’s truly a modern-day mystery.

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Blaming Breitbart and The Boston Globe

Courtesy of WashingtonPost.com.
Courtesy of MediaMatters.org.


Yesterday, Breitbart.com editor at large Larry O’Connor picked up on a news piece about Nobel Prize-winning economist Paul Krugman:

Breitbart.com ridiculed Paul Krugman for filing for Chapter 13 bankruptcy protection in a since-deleted post whose claims originated with a satire website. Just last month, Breitbart.com castigated a news outlet for running with a story from that same website.

In the March 11 post, Breitbart.com editor at large Larry O’Connor mocked the Nobel Prize winning economist and New York Times columnist for his alleged financial mismanagement. Unfortunately for O’Connor, the report that Krugman went bankrupt is clearly a joke and originated from the satirical website The Daily Currant. O’Connor has since deleted the post without explanation. (Update: O’Connor tweeted, saying he “trusted Boston.com as the source for that Krugman piece, but they were duped by Daily Currant, therefore, so was I!”)

Most of the reaction has predictably zeroed in with glee on Breitbart’s error. Media Matters’ headline for the above article was “Breitbart.com Runs With Satirical Story About Krugman Filing For Bankruptcy.” Slate.com ran a similar piece titled “No Breitbart, Paul Krugman Hasn’t Filed For Bankruptcy.”

Granted, the original satirical article on The Daily Currant is pretty funny. (Krugman thought so too.) Sample segment:

The filing says that Krugman got into credit card trouble in 2004 after racking up $84,000 in a single month on his American Express black card in pursuit of rare Portuguese wines and 19th century English cloth[.]

But to me, it was far more disturbing that a Boston Globe site got the story wrong than that Breitbart’s faux-journalistic outfit did. (Hell, it was just a couple weeks ago that Breitbart got busted for creating the lobbying group “Friends of Hamas” out of thin air.) Media Matters has since run an in-depth analysis of how an Austrian blogger’s mistakenly serious reading of The Daily Currant piece snaked its way onto the Boston.com site, and it’s a bit disturbing:

The bogus story that New York Times columnist Paul Krugman had filed for bankruptcy appeared on Boston.com, the sister website of The Boston Globe, through a third-party content provider that posts content without editorial approval and provides such content to more than 200 web outlets.

That provider, meanwhile, took the story from an Austrian-based blog without any editorial review or fact-checking of its own, a practice that is becoming more and more common in the Internet content sharing world. The blog has since deleted its post and all posts from the author appear to have been removed from Boston.com.

Over at The Washington Post, Erik Wemple got in touch with Globe editor Brian McGrory:

Brian McGrory, the Globe’s editor, explains that no editorial official at his paper ever made a decision to post the piece. “The story arrived deep within our site from a third party vendor who partners on some finance and market pages on our site,” says McGrory. It was never on the Boston.com homepage, says McGrory. “We never knew it was there till we heard about it from outside.” Since the posting went up, McGrory attests to having done “urgent work to get it the hell down,” something that appears to have happened, though not as quickly as McGrory would have liked. “The idea that we’d have a partner on our site is actually news to me,” says McGrory, who vows to “address our relationship with that vendor.”

Granted, McGrory is new on the job. But it’s pretty frightening that even the Globe‘s editor has no idea what appears on its site. Then again, based on the steadily declining quality of Boston.com over the past few years, I guess this shouldn’t be surprising. As Mathew Ingram succinctly put it:

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“Pwning” Krugman? Not so much.

[youtube http://www.youtube.com/watch?v=HOvBkg89a8c]

Andrew Sullivan posted some thoughts — titled “Pwning Krugman” — on the above video:

Still, Scarborough came prepared and clearly prevailed over a Nobel laureate in economics. Not bad for a hack. And he’s dead right about Krugman’s contempt for those with whom he disagrees. It actually weakens his case unnecessarily. And I have to say that over the past five years, I think Krugman has been more right than wrong.

Is Sullivan watching the same video I am? Scarborough not only misrepresented the substance of Krugman’s critique (multiple times, via multiple intentional misreadings of Krugman’s older books), but he seems to have done this deliberately. If he “pwned” Krugman, it’s only in the sense that a Nobel Prize-winning economist doesn’t spend most of his time learning to look good while being consistently wrong on TV. (I should know this: I just saw Krugman speak at a TEDx event a few weeks ago, and he wasn’t any more impressive as a speaker from fifteen feet away as he is on TV.)

What Krugman (oddly enough) didn’t emphasize sufficiently in his exchange with Scarborough is that both of the excerpts from his books came from well before the financial crisis era: 1997 and 2005. Instead, he rather admirably admitted that he had “learned a few things” since that time. This is certainly the case — and, it might be said, contrasts with Sullivan’s depiction of “Krugman’s contempt for those with whom he disagrees.”

(Side note: The New Yorker ran a fascinating profile of Krugman and his wife, the economist Robin Wells, in March 2010. One of the great nuggets from that piece was the revelation that it is Wells, and not Krugman, who tends to write with more vitriol: “On the rare occasion when they disagree about something, she will be the one urging him to be more outraged or recalcitrant.”)

But back to the Krugman/Scarborough debate. In both of the Krugman quotes that Scarborough cites, the crisis was years away. (In the case of the first quote, it was an entire decade away.) As Krugman tried to explain, he wrote about the dangers of the deficit back then precisely because the economy was stronger during those periods. But Scarborough consistently ignored the fact that Krugman has, time and time again, emphasized the foolishness of tackling the deficit during a recovery from a recession. To simply ignore this central qualification of Krugman’s deficit critique is to ignore the entire argument. “Pwning” Krugman? Not in the least.

(UPDATE — 10:51 AM EST 3/6/2013): I’m watching the full debate now. Krugman actually did a substantively much better job of making his point clear — that deficit reduction should be contingent upon a healthier economy — than he did in the brief clip shown above. (He continued to stumble when Scarborough brought up his previous quotes, despite the fact that these words were written during healthier economic times.) Indeed, he seems to have performed much better in the full debate than he even did in that short clip.

One person who agrees with Andrew Sullivan’s depiction of the “pwnage?” Well, Paul Krugman (kinda):

Well, we’ll see how it comes out after editing, but I feel that I just had my Denver debate moment: I was tired, cranky, and unready for the blizzard of misleading factoids and diversionary stuff (In 1997 you said that the aging population was a big problem! When Social Security was founded life expectancy was only 62!) Oh, and I wasn’t prepared for Joe Scarborough’s slipperiness about what he actually advocates (he’s for more spending in the near term? Who knew?)

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A Big Data divide at the Times

David Brooks says Big Data matters, but perhaps not as much as people think:

Big data has trouble with big problems. If you are trying to figure out which e-mail produces the most campaign contributions, you can do a randomized control experiment. But let’s say you are trying to stimulate an economy in a recession. You don’t have an alternate society to use as a control group. For example, we’ve had huge debates over the best economic stimulus, with mountains of data, and as far as I know not a single major player in this debate has been persuaded by data to switch sides.

Paul Krugman takes a look and says, “Waittt a minute here:”

It would be lovely to live in a world in which the failure of interest rates to soar as predicted would lead Brian Riedl of Heritage and Niall Ferguson to concede that their anti-stimulus critiques of 2009 were based on a completely wrong model; in which the economic downturns that have followed austerity policies almost everywhere they have been applied would lead Alberto Alesina to concede that his work on expansionary austerity was probably flawed, and lead George Osborne to proclaim publicly that he led Britain down the wrong path. But such things very rarely happen, and the fact that they don’t happen has nothing to do with the limitations of data…

So yes, it has been disappointing to see so many people sticking to their positions on fiscal policy despite overwhelming evidence that those positions are wrong. But the fault lies not in our data, but in ourselves.

It’s a good point from Krugman, who’s also been quite busy dealing with other knuckleheads.

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My problem with TEDx

Battle of the Beards: Paul Krugman eyes his sometime bête noire, Ben Bernanke. TEDx talk at Columbia University’s School of International and Public Affairs. Friday, February 15, 2013.)

It wasn’t until after all the speeches had ended and everyone was mingling around the makeshift bar outside that I finally made the connection: TEDx is just like church.

I can’t remember the first time I heard about TED, the conference series that emerged into the spotlight rather suddenly several years ago and has become a staple of the socially conscious set ever since. But I distinctly recall feeling mounting skepticism with each new mention of the organization, which was often expressed in near-mythic terms and was almost always unqualifiedly positive.

The first full talk I recall actually watching myself was Dutch General and then-Chief of Defence Peter van Uhm’s TEDx speech in the Netherlands in 2011. I’d been assigned the video for a graduate class in January of last year. The course was on the American military, and the TEDx talk I’d been instructed to watch was titled “Why I Chose the Gun.” Here’s how it started:

Well, ladies and gentlemen, first of all, thank you for giving me an applause before I even started. As the highest military commander of the Netherlands, with troops stationed around the world, I’m really honored to be here today. When I look around this TEDx Amsterdam venue, I see a very special audience: you are the reason why I said yes to the invitation to come here today. When I look around, I see people who want to make a contribution. I see people who want to make a better world — by doing groundbreaking scientific work, by creating impressive works of art, by writing critical articles or inspiring books, by starting up sustainable businesses. And you all have chosen your own instruments to fulfill this mission of creating a better world.

This, as I would soon discover, was as perfect a microcosm of the TED experience (TEDxperience?) as one could find. First, the establishment of his credentials; then, the obligatory salute to the audience; and, finally, the ode to the transcendent ideal of “a better world.” Continue reading My problem with TEDx

A comedian’s take on Hurricane Sandy

Nato Green gives it a shot for The Rumpus:

Disasters are live-action infomercials for big government. A crisis will flex and strain the muscles and tendons of big government until government’s nipples bleed under their racing tank-top: the taut glutes of regulation, the shredded abs of infrastructure investment, the rippling quads of highly-trained and well-paid unionized workers with real safety standards.

At one extreme you have the ripped, disciplined, and prepared Michael Phelps of government springing into action. At the other extreme you have the malnourished, drug-addled, and skittish government wholly unable to prepare or respond to a disaster. Think Haiti after the earthquake.

There are plutocrats who in their pillow talk believe that if you are poor enough to be hurt by a storm, then that is the natural consequence of your foolish choice to be poor. If natural disasters create the occasional Malthusian spike in immiseration and death, then it will be good for dividends. At best, human suffering that doesn’t affect me is not my problem. The stalwarts of the 1% would gladly replace FEMA with the Federal Country Club Maintenance Administration.

Right now the merit of big, burly, over-reaching, centralized, government contrasts sharply with the exuberant villainization of all things public by both parties. Both parties love austerity while loathing debt, spending, regulation, public workers, and taxes. Both candidates wring their hands about the debt and compete over who is most on the free enterprise system’s nuts. The difference between Obama and Romney is in degree.

Meanwhile, Paul Krugman urges us to consider the case of FEMA:

Like Mr. Clinton, President Obama restored FEMA’s professionalism, effectiveness, and reputation. But would Mitt Romney destroy the agency again? Yes, he would. As everyone now knows — despite the Romney campaign’s efforts to Etch A Sketch the issue away — during the primary Mr. Romney used language almost identical to Mr. Allbaugh’s, declaring that disaster relief should be turned back to the states and to the private sector.

The best line on this, I have to admit, comes from Stephen Colbert: “Who better to respond to what’s going on inside its own borders than the state whose infrastructure has just been swept out to sea?”

Look, Republicans love to quote Ronald Reagan’s old joke that the most dangerous words you can hear are “I’m from the government and I’m here to help.” Of course they’ll do their best, whenever they’re in power, to destroy an agency whose job is to say exactly that. And yes, it’s hypocritical that the right-wing news media are now attacking Mr. Obama for, they say, not helping enough people.

Back to the politics. Some Republicans have already started using Sandy as an excuse for a possible Romney defeat. It’s a weak argument: state-level polls have been signaling a clear and perhaps widening Obama advantage for weeks. But as I said, to the extent that the storm helps Mr. Obama, it’s well deserved.

The fact is that if Mr. Romney had been president these past four years the federal response to disasters of all kinds would have been far weaker than it was. There would have been no auto bailout, because Mr. Romney opposed the federal financing that was crucial to the rescue. And FEMA would have remained mired in Bush-era incompetence.

So this storm probably won’t swing the election — but if it does, it will do so for very good reasons.

So, about yesterday’s French presidential election

Paul Krugman:

What is true is that Mr. Hollande’s victory means the end of “Merkozy,” the Franco-German axis that has enforced the austerity regime of the past two years. This would be a “dangerous” development if that strategy were working, or even had a reasonable chance of working. But it isn’t and doesn’t; it’s time to move on. Europe’s voters, it turns out, are wiser than the Continent’s best and brightest.

What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills? One answer is that the confidence fairy doesn’t exist — that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper.

Rosecrans Baldwin:

France and America have a long history of mutual loathing and longing. Americans still dream of Paris; Parisians still dream of the America they find in the movies of David Lynch. It will take time for both countries to adjust to a new leader, a new image. For our part, we may even learn what a real Socialist is.

But the French will have it worse. They may not miss Nicolas Sarkozy now; they may never pine for him to return. They will, however, feel his absence. The temperature will drop. When an object we love to hate is removed, then love is lost, too.

The New York Times takes a broader look at the future of austerity:

In broad terms, the French vote unsettled center-right governments across Europe, while their center-left adversaries felt emboldened, hoping that the triumph of one socialist leader presaged a wider resurgence.

But the real nub of the ideological and fiscal contest lay in the continent’s traditional driving axis between Berlin and Paris, with Mr. Hollande promising to rewrite the austerity-driven pact struck between Mr. Sarkozy and Chancellor Angela Merkel of Germany, whose own electoral fortunes are also uncertain.

And, on the French right, they are already complaining about the presence of foreign flags at François Hollande’s Bastille victory party:

Les scènes de liesse qui ont accompagné l’éléction de François Hollande ne sont pas du goût de certaines personnalités de droite. Au-delà de la défaite du candidat Sarkozy, certains membres de l’ancien gouvernement, mais aussi du Front national, ont dénoncé, lundi 7 mai, la présence de “drapeaux rouges et étrangers”lors du rassemblement pour célébrer la victoire du socialiste, la veille, place de la Bastille à Paris.

Sur France info, l’actuel vice-président du FN, qui fut le directeur de campagne deMarine Le Pen, Louis Aliot, s’est déclaré “surpris” par la présence “d’autant de drapeaux étrangers pour saluer la victoire de M. Hollande”. Et de poursuivre : “Ce sont les mêmes drapeaux étrangers que l’on a vus saluer la victoire de M. Sarkozy et [celle] de Jacques Chirac, en 2002.”

I was there at Bastille starting at 7:15 PM or so all the way until Hollande’s speech ended around 1 AM, and there were a lot of foreign flags. Granted, it doesn’t take much to rile the Front National, but it was an interesting sight nonetheless. It was an unforgettable experience, even though I thought I was going to get trampled in the crowd at several different points.

Today’s ironic-in-retrospect quote

Paul Krugman, 11/14/2001:

But two months into the war on terrorism, we’re starting to get a sense of how little this war will actually cost. And it’s time to start asking some hard questions.

At the beginning of the week we learned that the war is currently costing around $1 billion per month. Oddly, this was reported as if it were a lot of money. But it’s only about half of 1 percent of the federal budget. In monetary terms, not only doesn’t this look like World War II, it looks trivial compared with the gulf war. No mystery there; how hard is it for a superpower to tip the balance in the civil war of a small, poor nation? At this rate, even five years of war on terrorism would cost only $60 billion…

So the budgetary cost of the war on terrorism, abroad and at home, looks like fairly small change. Even counting the measures that are likely to pass despite Mr. Bush’s threat, I have a hard time coming up with a total cost that exceeds $200 billion.



#50: Animal Spirits

How did John Maynard Keynes know I’m not rational? Or at least, not always rational. According to authors George A. Akerlof and Robert J. Shiller, this is one key precept that vanished somewhere along the line from its initial expression by Keynes to the onset of the Great Recession seventy years later. The duo’s book, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, is a concise attempt at its revival.

It is now nearly a foregone conclusion that humans act rationally as pertaining to economic decisions. So in the aggregate, the macro-economy will reflect thousands and millions of minor judgment calls that, taken together, constitute the long-sought-after equilibrium. The problem with this theory (even if this never seemed to bother its creator, Milton Friedman) is in its idealism. Are human beings rational? To an extent, yes. At other times, “people really are human, that is, possessed of all-too-human animal spirits,” the authors write.

What are these animal spirits, and what do they do? The definition given here is “the thought patterns that animate people’s ideas and feelings.” This sounds suitably vague, which is precisely the point. In the rush to transform economics into a science, overweening economists threw the baby out with the bathwater, discarding the very real enigma of human behavior along with the failed economic theories of prior eras. Akerlof, the 2001 Nobel Prize-winner in economics, and Shiller want nothing more than to reintroduce these animal spirits to the field of economics and the public at large.

But first, a re-branding. What was then “animal spirits” is now studied as “behavioral economics.” The authors propose five psychological aspects of this discipline: confidence, fairness, corruption and bad faith, money illusion, and stories. Each of these plays a unique role within the macro-economy, but not always intuitively. Money illusion, for example, describes what takes place when wage cuts are instituted following a deflationary trend. Even when the decrease in pay is commensurate with the drop in prices, employees usually feel cheated. A perfectly rational decision by an employer thus becomes an object lesson in the existence of money illusion (and influences the employees’ perception of relative fairness as well).

This flies in the face of classical economics, in which humans are presumed to be supremely rational. (That such theories persist alongside the ongoing public fascination with the likes of Paris Hilton or, say, the British royal family is its own nifty testament to the inscrutability of the human mind.) So Akerlof and Shiller dutifully document the effects of each of their five factors before launching into eight key questions whose answers only make sense in light of the findings of behavioral economics.

This is an enlightening book, and one made all the more pleasant for its conspicuous lack of angry demagoguery. On a spectrum of bitterness from Joseph Stiglitz to Paul Krugman, the authors of Animal Spirits are clearly more aligned with the former. This is an unexpected reprieve, which understandably lends additional gravitas to their cause. Their case can be summarized thusly: don’t buy too literally into the cult of the “invisible hand.” Markets do fail, which is precisely why government regulation (and occasional intervention) is necessary. Of course, with the benefit of hindsight since Animal Spirits was published, it appears their advice — like that of Stiglitz, Krugman, et al — has gone largely unheeded. What comes next is anyone’s guess.